Inter Pipeline Fund Q1 2010 Earnings Call Transcript

May.10.10 | About: Inter Pipeline (IPPLF)

Inter Pipeline Fund (OTCPK:IPPLF) Q1 2010 Earnings Call Transcript May 6, 2010 4:30 PM ET

Executives

Bill van Yzerloo – CFO

Jeremy Roberge – VP, Capital Markets

Analysts

Tony Courtright – Scotia Capital

Robert Kwan – RBC Capital Markets

Matthew Akman – Macquarie

Linda Ezergailis – TD Newcrest

Carl Kirst – BMO Capital Markets

Bob Hastings – Canaccord

Steven Paget – FirstEnergy

Operator

Good afternoon, ladies and gentlemen. Welcome to Inter Pipeline Fund's Q1 conference call and webcast. I would now like to turn the meeting over to Mr. Bill van Yzerloo, Chief Financial Officer of Inter Pipeline Fund. Please go ahead, sir.

Bill van Yzerloo

Thank you, Jenny and good afternoon, ladies and gentlemen. Welcome to Inter Pipeline Fund's first quarter 2010 conference call. Joining me today is Jeremy Roberge, Inter Pipeline's Vice President of Capital Markets. And today, we will discuss our first quarter operational and financial results.

Before we get into the discussion of our results, we would like to remind you that certain information relating to this conference call may contain forward-looking information that involves risks, uncertainties, and assumptions. Such information, although considered reasonable by Inter Pipeline at this time, may later prove incorrect and the actual results may differ materially from those stated or implied by our comments today. Undue reliance should not be placed on such information. A discussion of the related risk factors, uncertainties, and assumptions is available in our year-end MD&A available at www.cedar.com.

With that said, we will now move on to a discussion of our first quarter 2010 results. Inter Pipeline has another strong quarter with very positive financial and operating results. Funds from operations were over 85 million Canadian dollars for the quarter, up 29% from the comparable period of 2009. These successful results allow Inter Pipeline to remain a very strong payout ratio of only 67% before sustaining capital and 69% after sustaining capital.

Strong propane-plus frac spreads which impact our revenue from the sale of a product extracted at our Cochrane NGL facility primarily accounted for the increase in funds from operations.

Total throughput volumes on all of Inter Pipeline crude oil transportation systems averaged over 800,000 barrels per day, a new quarterly record. Cold Lake pipeline system volumes increased by over 60,000 barrels per day compared to the first quarter of 2009, more than offsetting declines on conventional pipeline systems and reduced throughput on the Corridor system. As expected, Corridor's volumes were lower due to commissioning activities related to the capacity expansion project, but did not impact cash flows due to the Corridor's cost of service contract.

The Corridor expansion project is entering its final phase in 2010. Final commission activities on the 42-inch diameter pipeline are underway with diluted bitumen volumes being injected for line fill. Commissioning of the other components of the expansion will occur later this year. First quarter expenditures on this project were approximately 22 million Canadian dollars, bringing the total expenditure to date to just over 1.6 billion Canadian dollars. The project remains on schedule and on budget and will begin generating revenue when fully in service or in any event, no later than January 1st, 2011.

When in service, the Corridor expansion will free up an existing 12-inch diameter pipeline for other business. This 12-inch line is being designated Polaris Pipeline system and will provide diluent transportation service to Alberta's oil sands region. As previously announced, the Polaris Pipeline system will initially provide diluent transportation for the Kearl oil sands project, a joint venture between Imperial and ExxonMobil. Engineering and regulatory groundwork on the project are continuing according to schedule.

Now, we will move on to discuss our NGL extraction business. This segment generated very strong results in the first quarter of 2010, exceeding first quarter 2009 funds from operations by over 80%. The increase is due to a much stronger commodity price environment as frac spreads have rebounded strongly since the end of 2008. Jeremy will provide more detail on frac spreads and our commodity hedging program.

Inter Pipeline's other three business segments, oil sands transportation, conventional oil pipelines, and bulk liquid storage, also performed very well during the quarter with all three segments producing stable funds from operations compared to Q1 of 2009.

Before turning things over to Jeremy, I'd like to briefly comment on Inter Pipeline's position with respect to general economic conditions. Inter Pipeline continues to be very well positioned to operate and grow despite recent weakness in the economic environment. The positive position results from strong long-term business fundamentals in all four of our business segments and a very well capitalized balance sheet.

In fact, we have a recourse debt to total capitalization ratio of only 34.4%, giving us substantial room to debt finance future growth projects. Supporting this strong balance sheet are our two main bank credit facilities, which have significant unutilized credit capacity and long remaining tenure.

We continue to have success advancing capital growth projects according to budget and plans. The solid progress made on the Corridor expansion project is a great example of this, mitigating the risk and adding certainty to future cash flow. The Corridor project, the recently completed Bow River segregation project, and development of the Polaris Pipeline system solidify our view that Inter Pipeline is well positioned to maintain its current cash distribution levels to unitholders once we become taxable in 2011 and in the years beyond.

With that, I will now turn the floor over to Jeremy to provide additional details on our first quarter financial results.

Jeremy Roberge

Thank you, Bill, and good afternoon everyone. For the three months period ended March 31st, 2010, Inter Pipeline generated strong financial results.

Funds from operations of 85.5 million Canadian dollars represent an increase of 19.4 million Canadian dollars or 29% higher than the first quarter of 2009. Net income during the quarter increased to 61.7 million Canadian dollars, up from the 43.4 million Canadian dollars earned in the first quarter of last year. The increases in funds from operations and earnings were primarily due to strong results in our NGL extraction business segment. Significantly higher realized frac spread prices on the sale of propane-plus products extracted at the Cochrane NGL facility led to the majority of the increase.

Even with Inter Pipeline increasing its monthly cash distribution by 7.1% at the end of last year to 0.075 Canadian dollar per unit, our first quarter payout ratio before sustaining capital was 67.4%. This ratio is almost 5% lower than the 71% payout ratio achieved in Q1 2009.

As of March 31st, 2010, Inter Pipeline's recourse debt to capitalization ratio improved slightly from year-end to a favorable 34.4%. Recourse debt is attributed directly to Inter Pipeline and included in the calculation of its financial covenants. On a consolidated basis, including roughly 1.9 billion Canadian dollars of non-recourse debt, Inter Pipeline's total debt to capitalization ratio was 66.2%. Inter Pipeline's debt position remains strong with approximately 1 billion Canadian dollars of unutilized credit capacity remaining on its committed credit facilities.

Next, I'll spend a few minutes discussing Inter Pipeline's EBITDA by business segment and contract type. During the first quarter of 2010, Inter Pipeline generated 95.3 million Canadian dollars of EBITDA, roughly 23% higher than first quarter 2009 EBITDA of 77.5 million Canadian dollars. By business segment, our NGL extraction business contributed 41.4 million Canadian dollars, conventional oil pipelines 24.4 million Canadian dollars, oil sands transportation 18.7 million Canadian dollars, and bulk liquid storage 10.8 million Canadian dollars.

Next, I'll break out first quarter EBITDA by contract type. Approximately 45% of EBITDA was derived from fee-based contracts with no commodity price risk, 24% was derived from cost of service agreements with no commodity price or volume risk, and 31% was derived from commodity-based agreements that are sensitive to both commodity to price and volume. Of the 31% that was derived from commodity-based agreements in the first quarter, about 5% was generated by marketing activities on the conventional oil pipeline business segment.

Inter Pipeline has no downside financial exposure and does not assume any commodity price risk under our marketing agreement with Nexen. The remainder of commodity-based EBITDA was derived from frac spreads realized on the sale propane-plus volumes extracted at the Cochrane NGL extraction facility.

Realized frac spreads in the first quarter including volumes hedged and unhedged were $0.816 per U.S. gallon, more than 80% higher than the $0.446 realized in the first quarter of 2009. Frac spreads continue to remain strong relative to historical averages. By comparison, the Q1 2010 average realized frac spread was more than twice the 15-year average of $0.34 per U.S. gallon.

As at May 4, 2010 we have hedged approximately 51% of forecast propane-plus volumes for the period April 1st through December 31st, 2010 at an average price of $0.72 per U.S. gallon. We have also hedge approximately 31% of 2011 forecast propane-plus volumes at an average price of $0.73 per U.S. gallon. We will consider to – we will continue to monitor commodity and financial markets and may consider additional hedges in the future.

This concludes the formal portion of the conference call and we'd now like to turn the meeting back to Jenny to open the floor for questions. Thank you.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) There will be a brief pause when the participants register for their questions. Thank you for your patience. Our first question is from Tony Courtright from Scotia Capital. Please go ahead.

Tony Courtright – Scotia Capital

Thanks very much. Jeremy, maybe you could help me with the answer to this. The question is, when Corridor goes into service, my understanding is that there is a requirement to put money in there to capitalize it with equity. Now on your page 19, I see that you have amounts drawn under a recourse syndicated credit facility. Is that – will you just add to that to represent equity? In other words, does that effectively already represent equity?

Jeremy Roberge

Tony, the page 19 shows our total capital structure, and you are referring to our MD&A. What we had planned to finance our quarter equity component would be – which is roughly 450 million Canadian dollars. We have planned to use Inter Pipeline's syndicated credit facility, which has a size of 750 million Canadian dollars.

Tony Courtright – Scotia Capital

Yes.

Jeremy Roberge

The amounts we have planned to draw were about 450 million Canadian dollars more from that facility to fund our equity component into the quarter rate base.

Tony Courtright – Scotia Capital

Would that repay any of the existing recourse quarter syndicated facility of 138 million Canadian dollars?

Jeremy Roberge

Yes, that 138 million Canadian dollars would be repaid, because that is what the recourse (inaudible) Inter Pipeline currently. So that will go to zero.

Tony Courtright – Scotia Capital

Okay. So that facility becomes extinguished and you replace it with upstairs partnership borrowings?

Jeremy Roberge

That's correct.

Bill van Yzerloo

Yes.

Tony Courtright – Scotia Capital

Right. Okay. In the discussion of Corridor, you mentioned that you are about 90 million Canadian dollars under budget for the parts that you have incurred to date or – the under-run relative or compared to the reverse, which would have been an overrun, do you it benefit from that at all or is it just neutral to you?

Bill van Yzerloo

No, there is a bit of sharing against what was the original budget for the Corridor expansion, so we do get to benefit a little bit of that. Unfortunately, that's part of the confidentiality under the agreement that we can't share the details with you. But directionally, we can tell you that we do share in some of that benefit with the share base.

Tony Courtright – Scotia Capital

Right. Okay. Turning to another oil sands pipeline, Cold Lake, you indicate that you have the opportunity and I think you did receive some additional capital fees for amounts above a threshold defined ship-or-pay amounts. What sort of – can you – are you at liberty to say what your threshold is and what sort of economics do you benefit and enjoy above the ship-or-pay threshold?

Bill van Yzerloo

Yes, so threshold is 350,000 barrels per day and that's been out there for quite a while. So anything above that, we – over the – over time will benefit from on a per barrel basis. So effectively we see a per barrel fee for the amounts above that and once again, under the confidentiality agreement, we can't tell you exactly what the per barrel fee is. But if you go back, I believe, to some of our previous year-end Annual Report disclosure, you should be able to figure out what that amount is.

Tony Courtright – Scotia Capital

All right. Lastly, in terms of oil sands, Polaris coming at the new renamed 12-inch line, when it comes out of rate base, what is the reduction of the rate base?

Bill van Yzerloo

Roughly 130 million Canadian dollars.

Tony Courtright – Scotia Capital

And the reference to the incremental EBITDA from Polaris, is that net of the loss on the quarter for the removal of the 12 inch line from the rate base, or is it just simply the increment on Polaris, and yet there is – you lose the rate base on the other side?

Jeremy Roberge

It's the latter, Tony.

Tony Courtright – Scotia Capital

Okay.

Jeremy Roberge

40 million Canadian dollars is associated with the Polaris Pipeline system. So when the 130 million Canadian dollars comes out of the quarter for rate base, so we have a little bit of an EBITDA loss on that component.

Tony Courtright – Scotia Capital

Got you. And if I could, just one last question. You reference a non-routine major maintenance at Cochrane during the quarter. Can you elaborate on that, please?

Bill van Yzerloo

Yes, that's one of the large gas turbines out there that required some maintenance earlier that we had talked. So that's what we are working on right now.

Tony Courtright – Scotia Capital

So it's still out and do you expect to be back up soon?

Bill van Yzerloo

Oh yes. But it's not hampering production, because we have more than one unit out there and we also have the option to do it straight from the electrical grid, so it's not hurting operations at all. It's just a matter of getting it back up and ready to roll.

Tony Courtright – Scotia Capital

I see. All right, I'll step into the queue. Thanks.

Bill van Yzerloo

Great. Thanks, Tony.

Jeremy Roberge

Thanks, Tony.

Operator

Thank you. Following question is from Robert Kwan from RBC Capital Markets. Please go ahead.

Robert Kwan – RBC Capital Markets

Thank you. Just on the bulk liquid storage business, you mentioned that you estimate 5 million Canadian dollars to 10 million Canadian dollars of CapEx to comply with the new U.K. regs. I'm just wondering how those regs compare with what's in place in Germany and Ireland? And do you see any additional spending in those jurisdictions?

Bill van Yzerloo

Yes. The regs are a little more stringent in the U.K. right now and what it calls for is enhanced bunding around the tank, which means if there is a spill, that all of the product in the tank could be captured by the bunding. So it would have to do with the permeation of the bunds, as well as the size of the bunds. So that's kind of what drives the U.K. regulation.

We may – the rest of Europe is watching that and may or may not implement similar standards in Europe. But if it does, the – safe to say that the German business is of a such smaller scale compared to the U.K. business that any incremental sustaining capital will be very small.

Robert Kwan – RBC Capital Markets

Okay. And that would just be capital; there would be no ability to recover on that, is that fair?

Bill van Yzerloo

Oh, we will do our best to recover those costs from customers. Don't get it wrong there. Every time a contract is up for renewal, we have to enhance the tank that the customer is using; we try to pass those customers through so it becomes part of the commercial negotiations with those customers.

Robert Kwan – RBC Capital Markets

Okay. But that's just kind of a pricing negotiation versus anything that is kind of spelled out in the contracts?

Bill van Yzerloo

Correct, correct.

Robert Kwan – RBC Capital Markets

Okay, okay. Just the other question I have is with the project financing for Corridor and the thinner equity component than some other infrastructure projects we see, how are you approaching bidding for new Greenfield projects in that liquids pipelines space from a financing perspective? Are you looking at similar capital structures to keep the toll down? Are you looking for kind of a similar low return on the base with the upside optionality? Can you just give some color on that?

Bill van Yzerloo

Yes, really our plan also depends on how commercial negotiations go. The stronger the contract is – in the Corridor case the firm service agreement, is to be able to support a financing, of course then the more debt you can introduce into a project financing scenario.

So I would say there is not a – there is not necessarily an answer to that captures every single oil sands project, but to the extent it's as strong as the FSA, well, then you can leverage it more. To the extent it's not quite as strong, either the shippers are different, the tenure is different, the commercial principles are different, then we probably go closer to what an Inter Pipeline cost of capital may be, which would be more of a 50-50 scenario.

Robert Kwan – RBC Capital Markets

Okay. But if you were chasing down very similar business, we would think about it kind of a similar way with thinner equity, kind of a high-single digit ROE, but obviously you would be looking at some optionality like you have on Polaris, to be moving that return up to a more normal level?

Bill van Yzerloo

That's safe to say. And other thing just to mention on this is the only way we would go for those sorts of leverage levels in another project would be provided it was not non-recourse, just as it is in Inter Pipe – with Corridor.

Tony Courtright – Scotia Capital

For sure. Okay, thanks a lot, Bill.

Bill van Yzerloo

Okay, Rob.

Operator

Thank you. Following question is from Matthew Akman with Macquarie. Please go ahead.

Matthew Akman – Macquarie

Thank you very much. First, I just wanted to confirm your thoughts on Empress and volumes. Obviously, everyone at Empress has seen volumes down, but I don't think it has a big impact on your business because the cost of service type contract. Is that right?

Bill van Yzerloo

Yes, that's (inaudible) and Empress II is completely cost of service, no volume risk.

Matthew Akman – Macquarie

Okay. Thanks for that. On the same volume question, but on this conventional oil pipelines segment, I wonder if you could just expand a little bit on what was going on with some of your customers moving to other systems.

Bill van Yzerloo

Yes. Well, I'm not sure if you follow the heavy oil differentials, but they've narrowed quite a bit certainly in the last eight months or so. So previously, customers that were producing heavy oil were moving it into our Bow River and our – particularly, our Central Alberta stream where it then gets blended with that stream and become a lighter blend, and effectively get a higher price.

With the more demand these days for heavy oil, the differentials have narrowed which takes that economic benefit away for volumes being trucked onto systems for them to actually dump it into our system. Rather, those volumes are getting redirected to the terminals at the ultimate end of the system rather the pipeline to get blended with other crude that's lighter.

So that's basically the dynamic of play there and it's – it will probably continue for as long as the heavy oil differentials stay low, which we hope won't be forever.

Matthew Akman – Macquarie

It looks like it could go for a while. Maybe you can comment, just last question, on opportunities you guys see around enhanced oil recovery though for volume pickup that might offset that as CO2 projects come online?

Bill van Yzerloo

Yes, CO2 projects, and more dense drilling techniques as well. We see both of those as being kind of directionally upward for our conventional oil pipelines business. That CO2 project is going straight into our – and area that's serviced by our Central Alberta system. So that's positive news for that. In addition, some of the new drilling techniques are also being tested in our area as well.

So certainly the natural declines are there, but we are certainly – over the long term, we expect to see some volume upticks from those two items.

Matthew Akman – Macquarie

Okay, thanks. Those are my questions.

Bill van Yzerloo

Great. Thank you.

Operator

Thank you. Following question is from Linda Ezergailis from TD Newcrest. Please go ahead.

Linda Ezergailis – TD Newcrest

Thank you, and congratulations on a strong quarter. I was wondering if you could perhaps provide some context with respect to your NGL extraction business. If you were to look at the forward market today, what sort of pricing are you seeing for the balance of 2010 and 2011? And what sort of liquidity are you seeing as well?

Jeremy Roberge

Certainly, and it's Jeremy. The liquidity has been very strong in the market. I think it's definitely improved ever since we've been in this business since we acquired this asset from Williams back in '07. For the balance of 2010, we are seeing frac spreads at just over $0.90 per U.S. gallon. For 2011, this would be a full calendar year type hedge; we are roughly around $0.78 per U.S. gallon. We are actually seeing quotes developing in 2012 as well, and those are around $0.72 per U.S. gallon.

So again, the market is very – it is quite deep and is certainly more liquid the further out you go, which wasn't there, I would say, 18 months to two years ago.

Linda Ezergailis – TD Newcrest

Okay. Thank you.

Jeremy Roberge

You are welcome.

Operator

Thank you. Following question is from Carl Kirst from BMO Capital Markets. Please go ahead.

Carl Kirst – BMO Capital Markets

Thanks. Good afternoon, everybody. Actually, most of my questions have been hit, but maybe just following up on Linda's there on the frac spread that – I mean, to the extent that there has been many other times in the past where we have had stronger markets than we do, is the 30% hedging in 2011 just a function of you only want to go so far out from a timeframe standpoint, or since we do have more liquidity, we should be seeing that get higher? I am just trying to get a better sense of your appetite for May '11 hedging, given the strength of that market.

Bill van Yzerloo

So our thinking is – generally speaking, there is a fairly standard backwardation in the forward curve in NGL pricing. So we like to kind of when we see a good opportunity, get the first 10% in, get the next 10% in, so we are up to where we are right now. But now we are quite a ways away and assuming all things stay the same, as we get closer to 2011, you might expect to see more hedges, but the effect backwardation gets smaller. So that's kind of how we look at it. We try to get a base position, then we'll add to that, we are at a good spot right now at this time of the year and maybe later in the year, you will see us do a few more for 2011 as the backwardation impact lessens.

Carl Kirst – BMO Capital Markets

Fair enough. Well, good market; I hope it stays.

Bill van Yzerloo

Yes.

Carl Kirst – BMO Capital Markets

And then just a quick question on Corridor. And I know the commentary is still no later than January 1st, but about when should we know actually a date certain if it's going to happen in 2010?

Bill van Yzerloo

Oh, I see. Quite honestly, it wouldn't until Q4 or at same point, late Q3, early Q4.

Carl Kirst – BMO Capital Markets

Okay.

Bill van Yzerloo

So I wouldn't expect us to move that date up from the – from a certainty perspective until end of the summer at the earliest.

Carl Kirst – BMO Capital Markets

All right. So don't ask before September, I got it.

Bill van Yzerloo

Sure.

Carl Kirst – BMO Capital Markets

Thanks guys.

Bill van Yzerloo

All right. Thanks, Carl.

Operator

Thank you. Following question is from Bob Hastings from Canaccord. Please go ahead.

Bob Hastings – Canaccord

Yes. Just to go back to sort of your CapEx outlook for the year and some of your maintenance CapEx, could you sort of refresh those numbers?

Bill van Yzerloo

Sure, Bob.

Bob Hastings – Canaccord

I think the maintenance you are looking for originally is about 18 million Canadian dollars. Is that still sort of the same amount for the year?

Jeremy Roberge

18 million Canadian dollars on the sustaining capital side, yes. That would be what we would expect. On the growth capital side, we are expecting a total of this year for 2010, about 313 million Canadian dollars.

Bob Hastings – Canaccord

Is that a higher (inaudible)?

Jeremy Roberge

It's a little bit higher. Yes, we've increased the – a little bit of capital by about 30 million Canadian dollars on our Corridor, because of the line fill it's going in right now, and we know that the prices are a little higher than originally estimated. So Corridor is up to about 240 million Canadian dollars for 2010. We do expect to spend roughly 26 million Canadian dollars at the Polaris Pipeline system this year.

Our extraction business hasn't changed from our last announcement, but that's going to be around 14 million Canadian dollars. And our bulk liquid storage business, I think that's up slightly from 14 million Canadian dollars to now 17 million Canadian dollars, with the balance then being spent between conventional at 9 million Canadian dollars and Cold Lake at 4 million Canadian dollars.

So if you add those numbers up, Bob, you're going to get total growth capital of about 313 million Canadian dollars for 2010, which is up around 282 million Canadian dollars number at the last conference call.

Bob Hastings – Canaccord

Okay. Thank you. The Bow River oil segregation project began service. Is there a contribution in the first quarter?

Jeremy Roberge

Yes. That contract pays us 16.5 million Canadian dollars and the cost of service contracts started January 1st, 2010. And so we were – we did have a portion of that reflected on our financial statements.

Bob Hastings – Canaccord

Okay. So right from January 1 it's been contributing?

Jeremy Roberge

Correct.

Bob Hastings – Canaccord

Okay. I think those – in Cochrane, the timing of the sweetening project?

Bill van Yzerloo

Yes, probably that hasn't changed much. There is a lot of engineering this year with construction over 2011 and 2012 would be probably the best estimate of that today.

Bob Hastings – Canaccord

Okay. I think that sounds a little later than before?

Bill van Yzerloo

Maybe a bit. I think we always – we looked at sometime in 2012 for that to be completed.

Bob Hastings – Canaccord

Okay. Is there any outages associated with that?

Bill van Yzerloo

I don't believe there – yes, it would be very small. It is certainly not like a total plant turnaround where we are taking everything down. So what we could actually – we need to check into that and see exactly what that would be, Bob.

Bob Hastings – Canaccord

Okay. Okay, thank you very much. Those are my questions.

Operator

Thank you. Following question is from Steven Paget from FirstEnergy. Please go ahead.

Steven Paget – FirstEnergy

Yes, good afternoon. I am noticing that the Alberta government's incremental ethane extraction project is far from meeting its target, which I believe is somewhere around 60,000 barrels a day. Is Inter Pipeline looking at more ways it can extract ethane in Alberta?

Bill van Yzerloo

Yes, we certainly – you may recall at E5, last year we did – or Empress V, sorry, we did an enhancement project there. There are a couple of projects associated with Cochrane, particularly one that deals with managing the compression as the gas is coming into the plant that we are looking at, maybe in a couple of thousand barrel per day of ethane increase. But having said that, we are certainly not looking at any Greenfield projects in this area. Our focus is primarily on organic development of our oil sands business for sure and there is certainly nothing imminent from us on a Greenfield ethane enhancement.

Steven Paget – FirstEnergy

Thank you. My next question is, would new volumes on the Ruby Pipeline opening next year into Malin, California, would that reduce volumes on GTN and possibly affect Cochrane?

Bill van Yzerloo

I'd say it could. It's a very complex system, the whole Ruby issue. And it depends how – really how the gas flows in and out north of Ruby [ph] – south Ruby of course as well. You have something to add to that?

Jeremy Roberge

Right. We know for a fact that while obviously the Ruby Pipeline was approved on April the 5th just this year and we expect the services to be available sometime late 2011. But given – as to what Bill mentioned, that natural gas markets are significantly dynamic and change frequently, there is certainly the possibility that there will be volumes – will displace certain volumes from Alberta, which could impact our production at the Cochrane facility.

Steven Paget – FirstEnergy

Okay, thank you.

Jeremy Roberge

You're welcome, Steven.

Operator

Thank you. (Operator Instructions) The following question is from Tony Courtright from Scotia Capital. Please go ahead.

Tony Courtright – Scotia Capital

Thanks. I guess as a general question about the Empress facilities and the tenure of the arrangements or contracts that you have there, obviously the more efficient plants are going to be viable and would be preferred, I guess, by shippers or producers ultimately, but what is the tenure of those contracts in general?

Jeremy Roberge

Tony, on a weighted basis – on a production weighted basis, the average tenure of our propane-plus and our C2 contracts out there is about 11 years.

Tony Courtright – Scotia Capital

Propane-plus and C2.

Jeremy Roberge

And ethane, correct.

Tony Courtright – Scotia Capital

And ethane. Is ethane generally longer than the C3 plus?

Jeremy Roberge

Well, we can't get into specifics. That's an average that includes Empress, as well as the Cochrane plant as well. So I – what we are trying to do is give you an average ballpark number. If there is – there is certain disclosure in our AIF that will go medium or long term, but we can't say exactly when those contracts expire, because we are always in negotiation with the counterparties to make sure that we continue to produce products for them.

Tony Courtright – Scotia Capital

And how do you see the evolution of the new NGL extraction scheme sort of integrating with existing contracts? Are the existing contracts paramount and people will be held to them or will they get sort of thrown up in a 52-card pickup and everybody reconfigures?

Bill van Yzerloo

I would suggest that there is certainly loyalty that exists between us as the producer and the customers. And that's – it's – I don't think it would be as simple as just, "Okay, the contract is up, let's renegotiate on similar terms," but it's also definitely not going to be a 52-card either, Tony. So we will certainly get into negotiations with the existing counterparties and take it from there. I'm certainly always looking to maximize the benefit to our unitholders, while recognizing we need to support particularly the ethane business in Alberta. So it's kind of a – it's a balance act, balancing act.

Tony Courtright – Scotia Capital

So we will just have to wait and see, because it's so complex?

Bill van Yzerloo

Yes.

Jeremy Roberge

Well, it’s complex and I think the industry is still noodling over exactly how that whole change is going to happen. And given where the price of gas is, I'm not sure how much intention that is actually garnered out there in the industry right now. So as Bill mentioned, we are just in kind of a wait-and-see mode, but we are certainly well positioned on both the producer side and the receipt side to continue our contracts with the parties that we have.

Tony Courtright – Scotia Capital

I would think it is the price of oil and the NGLs that has garnered their attention more than anything.

Bill van Yzerloo

Yes.

Jeremy Roberge

That's right.

Tony Courtright – Scotia Capital

All right. Thank you very much.

Bill van Yzerloo

Thanks, Tony.

Operator

Thank you. There are no further questions registered. I'd like to turn the meeting back over to Mr. van Yzerloo.

Bill van Yzerloo

Great. Thanks, Jenny, and thanks to everybody for participating on the call. We will look forward to discussing our Q2 results on our next conference call, which is currently planned for August the 5th, 2010. Bye for now.

Jeremy Roberge

Thank you.

Operator

Thank you, gentlemen. This concludes today's conference call, please disconnect your lines. And thank you for participation.

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